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<nobr>Jun 29, 2009</nobr>

House Committees Examine Draft Legislation, While Senate Committees Delay Mark Ups

Congress has now recessed for a one-week break from its healthcare reform deliberations, in most cases having fallen short of their goals for legislative progress. All three House committees (Ways & Means, Education and Labor, and Energy and Commerce) with jurisdiction over health care issues held hearings last week on what is known as the "Tri-Committee" legislation. Meanwhile, the Senate Health, Education, Labor, and Pensions (HELP) Committee last week continued marking up its draft legislation, while the Senate Finance Committee stepped back from the precipice and decided to delay its committee mark-up until after the July 4th recess.

The following is a short recap of where the three major bills are at this point in time.

House Leaders Release "Tri-Comm Discussion Draft"

The three House Committees involved in the health care reform debate (Ways & Means, Energy and Commerce, and Education and Labor) continue to work on developing a tri-committee consensus bill. The House on June 19 released its 852-page "discussion draft" embodying its approach to health care reform. Although all three committees held hearings on the legislation last week, the actual mark-ups in each committee will not take place until after the July 4th recess. After those mark-ups, the three committees will have to develop a single consensus bill for consideration by the full House of Representatives. House leaders are aiming for a vote by the full House before adjournment for the summer recess at the end of the first week in August.

In general, the House bill does not stray far from the legislative concepts being considered in the Senate. There is a mandate both for individuals and employers, and it also lays out a public plan option.

The major points of concern to large employers in the House bill include the following:

Individual mandates: Once the new system is up and running, individuals would be required to have health insurance. There would be an exception for hardship. Individuals who did not buy coverage would face a penalty of 2% of income, capped at the average cost of a premium in the Exchange.

Employer mandates: Employers could choose to provide health insurance to their employees or pay a penalty of 6% of payroll. Small employers (under $250,000 annual payroll) would be exempt.

To meet this pay-or-play standard, employers would need to contribute 72.5% of the cost of premiums for full-time employees and 65% for family coverage. Employers would need to either contribute a share of the expense for part-time employees or pay an amount to the Exchange on behalf of these employees.

Five years after establishment of the Exchange, companies that offer health insurance would need to meet the minimum coverage standards of those required of plans in the Exchange.

Exchanges: The legislation would create an Exchange that would operate as a clearinghouse through which individuals and small employers (and larger employers over time) could purchase health insurance. All plans in the Exchange would need to offer a core benefits package. These core benefits would include inpatient and outpatient hospital services, physician services, equipment and supplies incident to physician services, preventive and maternity services, prescription drugs, rehabilitative services, well child visits, and dental, vision, and hearing services for children.

This minimum benefits package would prohibit cost sharing for preventive services. The package would be required to cap the amount that an individual or family spends on out-of-pocket expenses in a year.

Four different tiers of packages would be available; the tiers would be differentiated by the levels of cost-sharing. The top "premium plus" package could offer additional covered benefits such as adult dental coverage and gym membership.

Public plan: One of the options within the Exchange would be a public plan that would be intended to operate on a level playing field with private plans. The public plan would need to meet the same benefit requirements and comply with the same insurance market reforms as private plans. The public plans would need to be self-sustaining and would need to build contingency funds into their rates. Initially providers would be paid by utilizing rates similar to those used in Medicare. Provider participation would be voluntary.

Insurance market reforms: Individuals could not be denied health coverage because of preexisting conditions, and lifetime and annual benefit caps would be prohibited. Premium variation based on health status, age, geographic area, and family size would be restricted.

Independent advisory committee: This committee, chaired by the Surgeon General, would be given broad authority to design and update the Exchange's core benefits package, based on statutory standards. This package would set the standard for plans offered through the Exchange and over time would become the "quality standard" for employer plans.

Low-income assistance: In 2013, Medicaid would be expanded to individuals and families with income up to 133% of the FPL ($14,404 for individuals and $29,327 for a family of four in 2009). Sliding scale credits would be available for individuals and families up to 400% of the FPL ($43,320 for individuals and $88,200 for a family of four). Credits would be available only for insurance purchased through the Exchange.

Revenue raisers undecided: One of the major issues left undecided in the House bill is how to pay for the legislation. House members apparently are distinctly unenthusiastic about funding reforms that would limit the employee tax exclusion for employer-provided health insurance. This lack of enthusiasm is at least partly fueled by the unions, many of whom signed on to a joint letter to Congress expressing vehement opposition to limiting the exclusion. If the tax exclusion ends up off the table in the House, other sources of revenue will need to be found to pay for the $1 trillion or more price tag.

Revenue raisers under consideration apparently include just about everything, including a surtax on the wealthy, an increase in payroll taxes, and a value added tax. Some ideas floated by the Ways & Means Committee include:

  • A 2% surtax on individuals making over $200,000 and on families making more than $250,000 ($256 billion over 10 years);

  • A .375% increase in the Medicare tax on both employers and employees ($344 billion over 10 years);

  • A 3% payroll tax on employer healthcare spending ($200 billion over 10 years);

  • A 1.0% to 1.5% VAT ($600 billion over 10 years).

The idea raised by President Obama in his budget -- to limit the value of itemized deductions on an individual's income tax return to 28% -- would raise $269 billion (this idea is also distinctly unpopular on the Hill).

Senate Health, Education, Labor, and Pensions (HELP) Committee Bill

The Senate HELP Committee continued its seemingly endless mark-up of its "draft" legislation, which still contains major blanks where the provisions on employer mandates and a public plan would normally reside. The mark-up will resume after the July 4th recess, when the Committee addresses the sections of the bill describing long-term care and coverage. Presumably, the Committee will also then mark up the employer mandate and other issues on which language has not yet been released. Almost 400 amendments have been submitted -- these are expected to be augmented substantially when the committee releases additional parts of the draft legislation.

With respect to the employer mandate, Senator Chris Dodd (D-CT), who is filling in as leader of the HELP Committee in the absence of Senator Ted Kennedy (D-MA), has announced that any pay-or-play element in the HELP bill will not include a penalty that is set as a percentage of payroll. One penalty that apparently is under consideration is an approach such as that taken in Massachusetts, where employers must pay approximately $300 per worker per year if they do not provide a certain level of health coverage for their employees. Another possibility is to assess employers a specified amount if they have employees who are on Medicaid or otherwise partake of a health-related federal subsidy; this is known as a "free rider" penalty. No further information has been released on what type of public plan option they are considering.

CBO Scoring: The Congressional Budget Office (CBO) recently estimated that the Senate HELP bill would cost the government $1 trillion over 10 years but would only lead to a net increase in the insured population of 16 million. By their estimate, 39 million additional people would receive insurance through the new exchanges in the HELP legislation. Employer coverage would decline by 15 million, and coverage from other sources would decline by 8 million.

Subsidies given to low-income individuals would cost approximately $1.3 trillion, and a credit for small employers was priced at $60 billion over ten years. Bottom line: It would seem that spending $1 trillion over ten years to cover an additional 16 million people is not an efficient use of limited resources.

Senate Finance Committee Action

The Senate Finance Committee is still considering its options for paying for the costs of its healthcare legislation, which assumed added urgency when CBO announced that the bill's cost could approach $1.6 trillion over ten years. This apparently was a major reason why the Committee pulled back from its earlier decision to start the mark-up process last week. Committee Chairman Max Baucus (D-MT) issued a statement shortly after the score was released, saying that ultimately their legislation would cost no more than $1 trillion and that its cost would be fully offset by provisions in the legislation.

Apparently the committee is looking to achieve these targets by lowering the level at which individuals can receive subsidized health care from 400% to 300% of the FPL. The Finance Committee is also reviewing the imposition of a "free rider" penalty and is actively considering a cap on the employee exclusion of employer-provided health insurance. Cuts to Medicare Advantage plans are also under consideration. Other, non-health related revenue raisers are thought to be under consideration as well, such as an approach suggested by President Obama that would limit the percent of itemized deductions that wealthy individuals may claim on their federal income tax returns. Presumably, more information on these items will be available after the July 4th recess. Senator Baucus said he will not schedule a mark-up for the bill until the Committee has fully considered its options.

Senate Progress: The original target for the Senate's consideration of healthcare reform was for both the HELP Committee and the Finance Committee to have voted a bill out of committee by July 4th. This clearly did not happen, and, in fact, neither committee even came close to achieving that goal. (Also missing is any evidence that the SFC will be able to produce a bill with significant bipartisan backing; no similar expectation has ever been raised with respect to the HELP bill.) This would seem to suggest that the possibility of approving both bills in committee and then moving to a vote on the Senate floor by the first week in August would be a significant challenge; consideration in the fall may be more likely.

Questions or comments on health reform should be addressed to Gretchen Young,


House Tri-Comm Proposal

Senate HELP Committee Mark Up

CBO Estimates of HELP Bill

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